<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-14379
--------
EAGLE BANCSHARES, INC.
--------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Georgia 58-1640222
---------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4419 Cowan Road, Tucker, Georgia 30084-4441
----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(770) 908-6690
------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
-----------------------------------------------
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ] NOT APPLICABLE
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
---------------------------------- ---------------------------------
Common Stock, $1.00 Par Value 5,560,481 shares
Index of Exhibit on Page 40
<PAGE> 2
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
-------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1999 and March 31, 1999 ...................................................... 3
Consolidated Statements of Income at Three and
Six Months ended September 30, 1999 and 1998 .................................................. 4
Consolidated Statements of Cash Flows at Six
Months ended September 30, 1999 and 1998 ...................................................... 5
Notes to Consolidated Financial Statements .................................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................ 36
Item 2. Changes in Securities .................................................................... 37
Item 3. Defaults upon Senior Securities .......................................................... 37
Item 4. Submission of Matters to a Vote of Security Holders ...................................... 37
Item 5. Other Information ........................................................................ 37
Item 6. Exhibits and Reports on Form 8-K ......................................................... 38
Signatures ................................................................................... 39
Index of Exhibits ............................................................................ 40
</TABLE>
2
<PAGE> 3
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, March 31,
(dollars in thousands except per share data) 1999 1999
------------- -----------
<S> <C> <C>
ASSETS:
Cash and amounts due from banks $ 18,177 $ 7,839
Accrued interest receivable 7,737 7,766
Securities available for sale 201,858 204,618
Investment securities held to maturity 64,522 68,298
Loans held for sale 148,819 221,370
Loans receivable, net 665,772 623,270
Investment in real estate 29,528 30,274
Real estate acquired in settlement of loans, net 1,674 2,096
Stock in Federal Home Loan Bank, at cost 12,035 8,736
Premises and equipment, net 23,862 23,275
Deferred income taxes 7,073 4,059
Other assets 6,534 8,399
----------- -----------
Total assets $ 1,187,591 $ 1,230,000
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 772,270 $ 879,665
Federal Home Loan Bank advances and other borrowings 298,947 221,552
Advance payments by borrowers for property taxes and insurance 1,982 2,356
Drafts outstanding 5,219 12,800
Guaranteed preferred beneficial interests in the Company's subordinated debentures -
(Trust preferred securities) 28,750 28,750
Accrued expenses and other liabilities 6,958 10,060
----------- -----------
Total liabilities 1,114,126 1,155,183
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 10,000,000 shares authorized, 6,115,031 and
6,124,064 shares issued at September 30, and March 31, 1999, respectively 6,115 6,124
Additional paid-in capital 38,027 38,206
Retained earnings 41,507 38,601
Accumulated other comprehensive income (4,623) (283)
Employee Stock Ownership Plan note payable (1,886) (1,978)
Unamortized restricted stock -- (178)
Treasury stock, 554,500 shares at cost, at September 30, and March 31, 1999 (5,675) (5,675)
----------- -----------
Total stockholders' equity 73,465 74,817
----------- -----------
Total liabilities and stockholders' equity $ 1,187,591 $ 1,230,000
----------- -----------
</TABLE>
3
<PAGE> 4
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
(dollars in thousands except per share data) SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest on loans $16,948 $18,285 $33,765 $36,642
Interest on mortgage-backed securities 2,151 1,283 4,173 2,554
Interest and dividends on securities and other interest-earning assets 2,340 1,742 4,827 3,548
------- ------- ------- -------
Total interest income 21,439 21,310 42,765 42,744
------- ------- ------- -------
INTEREST EXPENSE:
Interest on deposits 8,851 10,281 18,520 20,681
Interest on FHLB advances and other borrowings 3,448 2,726 6,328 5,732
Interest on long-term debt 623 434 1,245 434
------- ------- ------- -------
Total interest expense 12,922 13,441 26,093 26,847
------- ------- ------- -------
Net interest income 8,517 7,869 16,672 15,897
PROVISION FOR LOAN LOSSES 100 627 400 1,254
------- ------- ------- -------
Net interest income after provision for loan losses 8,417 7,242 16,272 14,643
------- ------- ------- -------
NON-INTEREST INCOME:
Mortgage production fees 1,460 4,690 4,242 7,909
Gain on sales of investment in real estate 1,176 162 3,253 1,091
Real estate commissions, net 203 241 546 414
Rental income -- 173 165 346
Service charges 551 481 1,010 1,051
Gain on sales of investment securities available for sale 19 202 19 469
Gain on sale of loans -- 24 -- 24
Gain on sales of fixed assets 175 5 176 152
Gain on sale of branch -- -- 673 --
Miscellaneous 1,020 703 2,029 1,640
------- ------- ------- -------
Total non-interest income 4,604 6,681 12,113 13,096
------- ------- ------- -------
NON-INTEREST EXPENSES:
Salaries and employee benefits 5,100 5,189 11,603 10,445
Net occupancy expense 1,504 1,355 3,026 2,517
Data processing expense 698 601 1,365 1,165
Federal insurance premium 106 161 287 257
Marketing expense 430 495 1,099 991
Provision for losses on real estate acquired in the settlement of loans 50 -- 50 --
Miscellaneous 2,040 2,391 4,189 4,208
------- ------- ------- -------
Total non-interest expenses 9,928 10,192 21,619 19,583
------- ------- ------- -------
Income before income taxes 3,093 3,731 6,766 8,156
INCOME TAX EXPENSE 846 1,260 2,078 2,705
------- ------- ------- -------
NET INCOME $ 2,247 $ 2,471 $ 4,688 $ 5,451
------- ------- ------- -------
EARNINGS PER COMMON SHARE - BASIC $ 0.40 $ 0.42 $ 0.84 $ 0.94
------- ------- ------- -------
EARNINGS PER COMMON SHARE - DILUTED $ 0.40 $ 0.41 $ 0.83 $ 0.91
------- ------- ------- -------
</TABLE>
4
<PAGE> 5
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(dollars in thousands)
Six Months ended September 30, 1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,688 $ 5,451
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation, amortization and accretion 1,128 1,240
Provision for loan losses 400 1,254
Provision for losses on real estate acquired in settlement of loans 50 --
(Gain)/loss on sales of securities available for sale (19) (469)
(Gain)/loss on sales of real estate acquired in settlement of loans (134) (107)
Gain on sales of investment in real estate (3,253) (1,091)
Gain on sale of loans -- (24)
Gain on sales of premises and equipment (176) (152)
Amortization of restricted stock 50 59
Deferred income tax (benefit)/expense (358) 49
Proceeds from sales of loans held for sale 586,003 731,821
Originations of loans held for sale (513,452) (767,547)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable 29 (860)
Decrease (increase) in other assets 1,813 (3,236)
(Decrease) increase in drafts outstanding (7,582) 3,188
Decrease in accrued expense and other liabilities (3,101) (1,433)
----------- -----------
Net cash provided by (used in) operating activities 66,086 (31,857)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale (20,860) (114,004)
Proceeds from sales of securities available for sale 1,807 9,441
Purchases of investment securities held to maturity (9,884) --
Principal payments received on securities available for sale 14,787 9,249
Principal payments received on investment securities held to maturity 4,701 1,335
Proceeds from calls of securities available for sale -- 6,249
Proceeds from calls of investment securities held to maturity 6,567 8,000
Proceeds from maturities of securities available for sale -- 1,501
Proceeds from maturities of investment securities held to maturity 2,500 --
Loan originations, net of repayments (42,742) 15,695
Proceeds from sale of real estate acquired in settlement of loans 976 976
Purchases of FHLB stock (9,307) (4,570)
Redemption of FHLB stock 6,008 4,085
Proceeds from sales of premises and equipment, net 2,018 535
Purchase of premises and equipment (3,825) (794)
Additions to investment in real estate (11,384) (7,802)
Proceeds from sales of investment in real estate 15,014 2,681
----------- -----------
Net cash used in investing activities $ (43,624) $ (67,423)
----------- -----------
</TABLE>
5
<PAGE> 6
EAGLE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
(dollars in thousands)
Six Months ended September 30, 1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in time deposits $ (83,221) $ (15,154)
Net change in demand deposit accounts (24,174) 9,766
Repayment of FHLB advances and other borrowings (308,355) (467,980)
Proceeds from FHLB advances and other borrowings 385,750 535,525
Increase in ESOP debt -- (1,916)
Principal reduction of ESOP debt 92 165
Issuance of trust preferred securities -- 28,750
Repurchase of common stock -- (402)
Proceeds from exercise of stock options (9) 813
Retirement of restricted stock (50) --
Cash dividends paid (1,783) (1,791)
Decrease in advance payments from borrowings for
property taxes and insurance (374) (2,287)
---------- ----------
Net cash (used in) provided by financing activities (32,124) 85,489
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,662) (13,791)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 27,839 34,682
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,177 $ 20,891
---------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH PAID DURING PERIOD FOR:
Interest $ 27,474 $ 30,122
Income taxes $ 20 $ 6,866
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of real estate in settlement on loans $ 470 $ 678
Loans made to finance real estate acquired in settlement of loans $ -- $ 294
Loans made to finance sales of investments in real estate $ 325 $ 2,718
Dividends payable $ 890 $ 926
</TABLE>
6
<PAGE> 7
Eagle Bancshares, Inc. and Subsidiaries
Notes to Interim Unaudited Consolidated Financial Statements
September 30, 1999
A. Corporate Profile
Eagle Bancshares, Inc. (the "Company") is a unitary savings and loan
holding company engaged in community banking, mortgage banking, real estate
development and sales, and mezzanine financing. The Company has three
subsidiaries, Tucker Federal Bank (the "Bank"), Eagle Real Estate Advisors, Inc.
("EREA") and Eagle Bancshares Capital Group, Inc. ("EBCG"). Additionally, the
Company invests in real estate through limited liability companies and
consolidates these affiliates when at least a 50% equity ownership interest
exists.
B. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for preparation of the Securities
and Exchange Commission Form 10-Q. Accordingly, they do not include all of the
information and disclosures required for fair presentation in accordance with
generally accepted accounting principles. These financial statements should
therefore be read in conjunction with management's discussion and analysis of
financial condition and results of operations included in this report and the
complete annual report for the year ended March 31, 1999, which has been filed
with the Company's most recent Form 10-K. In the opinion of management, all
eliminations and normal recurring adjustments considered necessary for fair
presentation have been included. Operating results for the six month period
ended September 30, 1999, are not necessarily indicative of the results that may
be expected for the fiscal year ending March 31, 2000.
C. Reclassification of Prior Period Amounts:
Certain reclassifications have been made in the Company's financial
statements for the prior fiscal period to conform to the classifications used in
the financial statements for the current fiscal period.
D. Earnings Per Share
Basic earnings per share are based on the weighted average number of
common shares outstanding during each period. Diluted earnings per common share
are based on the weighted average number of common shares outstanding during
each period, plus common share equivalents calculated for stock options and
restricted stock outstanding using the treasury stock method. All share and per
share information included in these financial statements have been restated to
give effect to the Company's adoption of Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings per Share".
In the calculation of basic and diluted earnings per share, net income
is identical. Below is a reconciliation for the three month periods ended
September 30, 1999 and 1998, of the difference between average basic common
shares outstanding and average diluted common shares outstanding.
7
<PAGE> 8
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(dollars in thousands except per share data) THREE MONTHS ENDED
----------------------------------------
SEPT. 30, 1999 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Basic
Net income $ 2,247 $ 2,471
------- -------
Average common shares 5,560 5,788
------- -------
Earnings per common share - basic $ 0.40 $ 0.42
------- -------
Diluted
Net income $ 2,247 $ 2,471
------- -------
Average common shares - basic 5,560 5,788
Incremental shares outstanding 117 167
Average common shares - diluted 5,677 5,955
------- -------
Earnings per common share - diluted $ 0.40 $ 0.41
------- -------
</TABLE>
Below is a reconciliation for the six month periods ended September 30,
1999 and 1998, of the difference between average basic common shares outstanding
and average diluted common shares outstanding.
<TABLE>
<CAPTION>
(dollars in thousands except per share data) SIX MONTHS ENDED
----------------------------------------
SEPT. 30, 1999 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Basic
Net income $ 4,688 $ 5,451
------- -------
Average common shares 5,560 5,788
------- -------
Earnings per common share - basic $ 0.84 $ 0.94
------- -------
Diluted
Net income $ 4,688 $ 5,451
------- -------
Average common shares - basic 5,560 5,788
Incremental shares outstanding 120 183
Average common shares - diluted 5,680 5,971
------- -------
Earnings per common share - diluted $ 0.83 $ 0.91
------- -------
</TABLE>
E. Accumulated Other Comprehensive Income
The Company adopted the provisions in Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement requires
that certain transactions and other economic events that bypass the income
statement must be displayed as other comprehensive income. The Company's
comprehensive income consists of net income and the change in unrealized gains
and losses on securities available for sale, net of income taxes.
8
<PAGE> 9
Comprehensive income for the three and six months ended September 30,
1999 and 1998 is calculated as follows:
<TABLE>
<CAPTION>
(dollars in thousands) THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- -----------------------
SEPT. 30, Sept. 30, SEPT. 30, Sept. 30,
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unrealized (losses) gains, net recognized in
accumulated other comprehensive income:
Before income tax $(2,254) $ 910 $(6,995) $ 648
Income tax (856) 345 (2,655) 245
Net of income tax $(1,398) $ 565 $(4,340) $ 403
Amounts reported in net income:
Gains on sales of securities available for sale $ 19 $ 202 $ 19 $ 469
Net accretion on securities available for sale -- 36 -- 67
------- ------- ------- -------
Reclassification adjustment 19 238 19 536
Income tax expense (7) (90) (7) (204)
------- ------- ------- -------
Reclassification adjustment, net of tax 12 148 12 332
Amounts reported in accumulated other comprehensive
income:
Unrealized (losses)gains arising during period, net of tax (1,386) 713 (4,328) 735
Less reclassification adjustment, net of tax 12 148 12 332
------- ------- ------- -------
Unrealized (losses) gains, net recognized in
accumulated other comprehensive income (1,398) 565 (4,340) 403
Net income 2,247 2,471 4,688 5,451
------- ------- ------- -------
Total comprehensive income $ 849 $ 3,036 $ 348 $ 5,854
------- ------- ------- -------
</TABLE>
F. Industry Segments
SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information," requires disclosure of certain information related to the
Company's reportable operating segments. The reportable operating segments were
determined based on management's internal reporting approach. The reportable
segments consist of: community banking, mortgage banking, real estate
development and sales, and mezzanine financing. The community banking segment
offers a wide array of banking services to individual and corporate customers
and earns interest income from loans made to customers and interest and dividend
income from investments in certain debt and equity securities. The community
banking segment also recognizes fees related to deposit services, lending, and
other services provided to customers. The mortgage banking segment originates
residential mortgage loans through retail loan production offices and purchases
residential mortgage loans from correspondents through a wholesale lending
office. The mortgage banking segment generates revenues through origination
fees, interest on residential mortgage loans and selling substantially all of
the fixed rate residential mortgage loans to investors. The mortgage banking
segment's primary sources of fee income is derived from services including loan
application and origination, the gain or loss on the sale of loans to third
parties, and from the sale of mortgage servicing rights. The real estate
development and sales segment performs real estate development activities in the
Atlanta metropolitan area by investing in land for the development of
residential subdivisions. The real estate development and sales segment sells
the lots within these subdivisions and frequently provides the lot and/or
construction loan financing through Tucker Federal Bank. The real estate
development and sales segment also provides third party brokerage services for
the Bank and for unaffiliated third parties. The mezzanine financing segment
provides mezzanine financing to small- and medium-sized businesses that is not
readily available from traditional
9
<PAGE> 10
commercial banking sources. The mezzanine financing segment generates revenues
through interest and fees on loans. No transactions with a single customer
contributed 10% or more to the Company's total revenue.
10
<PAGE> 11
The results for each reportable segment are included in the following table:
<TABLE>
<CAPTION>
Real Estate
THREE MONTHS ENDED: Community Mortgage Development Mezzanine
Banking Banking and Sales Financing Other Eliminations Consolidated
----------- --------- ----------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
(dollars in thousands)
SEPTEMBER 30, 1999:
NET INTEREST INCOME (EXPENSE) $ 8,766 $ (140) $ 19 $ 381 $ (470) $ (39) $ 8,517
NET NON-INTEREST (EXPENSE) INCOME (4,002) (2,293) 901 16 15 39 (5,324)
DEPRECIATION ON PREMISES AND
EQUIPMENT 546 139 -- -- -- -- 685
INCOME TAX EXPENSE (BENEFIT) 1,484 (983) 368 159 (182) -- 846
NET INCOME 3,205 (1,475) 552 238 (273) -- 2,247
PROVISION FOR LOAN LOSSES 75 25 -- -- -- -- 100
TOTAL ASSETS 1,175,046 197,424 30,867 18,293 15,014 (249,053) 1,187,591
EXPENDITURES FOR ADDITIONS TO
PREMISES AND EQUIPMENT 1,657 114 -- -- -- -- 1,771
TOTAL REVENUES FROM EXTERNAL CUSTOMERS 19,714 4,158 1,498 358 315 -- 26,043
INTERSEGMENT REVENUES 3,815 87 (84) 88 253 -- 4,159
----------- --------- -------- ------- -------- --------- -----------
September 30, 1998:
----------- --------- -------- ------- -------- --------- -----------
Net interest income (expense) $ 7,596 $ 328 $ (85) $ 281 $ (224) $ (27) $ 7,869
Net non-interest (expense) income (5,795) 2,146 213 -- (102) 27 (3,511)
Depreciation on premises and
equipment 428 131 -- -- -- -- 559
Income tax expense (benefit) 244 984 51 112 (131) -- 1,260
Net income 945 1,475 77 169 (195) -- 2,471
Provision for loan losses 612 15 -- -- -- -- 627
Total assets 1,166,266 403,477 28,819 11,488 19,210 (386,620) 1,242,640
Expenditures for additions to premises
and equipment 511 47 -- -- -- -- 558
Total revenues from external customers 15,990 10,956 582 280 183 -- 27,991
Intersegment revenues 7,594 581 15 1 393 -- 8,584
</TABLE>
11
<PAGE> 12
The results for each reportable segment are included in the following table:
<TABLE>
<CAPTION>
Real Estate
SIX MONTHS ENDED: Community Mortgage Development Mezzanine
Banking Banking and Sales Financing Other Eliminations Consolidated
----------- --------- ----------- ----------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1999:
NET INTEREST INCOME (EXPENSE) $ 16,973 $ 1 $ (70) $ 775 $ (934) $ (73) $ 16,672
NET NON-INTEREST (EXPENSE) INCOME (8,930) (3,627) 2,904 9 65 73 (9,506)
DEPRECIATION ON PREMISES AND
EQUIPMENT 1,094 269 -- -- -- -- 1,363
INCOME TAX EXPENSE (BENEFIT) 2,440 (1,462) 1,134 314 (348) -- 2,078
NET INCOME 5,233 (2,194) 1,700 470 (521) -- 4,688
PROVISION FOR LOAN LOSSES 370 30 -- -- -- -- 400
TOTAL ASSETS 1,175,046 197,424 30,867 18,293 15,014 (249,053) 1,187,591
EXPENDITURES FOR ADDITIONS TO
PREMISES AND EQUIPMENT 3,631 230 -- -- -- -- 3,861
TOTAL REVENUES FROM EXTERNAL CUSTOMERS 39,488 10,191 3,992 600 607 -- 54,878
INTERSEGMENT REVENUES 7,550 240 39 284 518 -- 8,631
----------- --------- -------- ------- -------- --------- -----------
September 30, 1998:
----------- --------- -------- ------- -------- --------- -----------
Net interest income (expense) $ 15,082 $ 609 $ (171) $ 563 $ (158) $ (28) $ 15,897
Net non-interest (expense) income (10,082) 2,170 1,148 -- 249 28 (6,487)
Depreciation on premises and
equipment 864 257 -- -- -- -- 1,121
Income tax expense (benefit) 951 1,101 391 225 37 -- 2,705
Net income 2,821 1,652 586 338 54 -- 5,451
Provision for loan losses 1,228 26 -- -- -- -- 1,254
Total assets 1,166,266 403,477 28,819 11,488 19,210 (386,620) 1,242,640
Expenditures for additions to premises
and equipment 736 82 -- -- -- -- 818
Total revenues from external customers 32,221 20,540 1,862 562 655 -- 55,840
Intersegment revenues 13,477 545 43 1 614 -- 14,680
</TABLE>
12
<PAGE> 13
G. Year 2000
The Year 2000 issue is the result of computer programs using a
two-digit format, as opposed to four-digits, to indicate the year. These
computer systems, using a two-digit format, will be unable to interpret dates
beyond the year 1999, which could cause system failures or other computer
errors, leading to disruptions in operations. In addition, many software
programs and automated systems could fail to recognize the year 2000 as a leap
year. The problem is not necessarily limited to computer systems, or any
particular industry or field.
The Company is committed to addressing the Year 2000 issues and
developed a comprehensive business plan to manage these issues. The Company
established Team2000, a group of key employees, mission critical vendors and an
outside consulting firm to address the Year 2000 issues. Team2000 is responsible
for ensuring that its in-house processing, service providers, and software
vendors are fully compliant with the Year 2000 requirements. Subcommittees have
been established throughout the Company to identify, address and mitigate key
Year 2000 issues in the organization. Furthermore, Team2000 launched an
awareness campaign during 1998, that will continue through December 31, 1999,
that is designed to raise the awareness and encourage input from all Company
employees. The Company's Executive Management Team receives progress updates on
a monthly basis and the Board of Directors receives updates on a quarterly
basis.
The Company's Year 2000 plan has five phases: inventory, assessment,
renovation, validation and implementation. During the inventory phase, Team2000
identified all areas with potential Year 2000 issues. All hardware and software
systems, including all of its equipment such as elevators, alarm systems, ATMs,
vault locks, etc. that may contain embedded systems were identified. The
assessment phase involved detailed analysis and planning to determine the most
cost effective method of renovation. Additionally, during the assessment phase,
Team2000 categorized each issue into one of three levels of priority: mission
critical, important and non-mission critical. The levels of priority were
determined based on the significance of the potential impact on the Company. The
inventory and assessment phases are complete. Team2000 prepared a series of
procedures to test each application based on its level of priority. In order to
protect current operations, an isolated test environment was created to test
network and software applications. Applications, operating systems, hardware,
databases and internal and external interfaces were tested. Testing was designed
to ensure that applications, and the environment they operate in, can properly
process data and dates without compromising computer-based entries and record
keeping associated with the Year 2000 date change. As of September 30, 1999, the
renovation and validation phases are 100% complete. The implementation phase
includes any necessary training of users on newly compliant systems, as well as,
introduction of such systems into live operating environments, and the "Event
Plan" rehearsal. The implementation phase is substantially complete. The "Event
Plan" training and rehearsal were successfully completed in September of this
year.
As a supplement to The Company's Business Continuation and Recovery
Plans, Team2000 has developed an "Event Plan" that is specific to the time
period of September 1, 1999 through July 15, 2000. The Event Plan contains the
procedures, guidelines, and information relevant to the ongoing successful
operation of each line of business before, during and after the new millennium.
Writing, Training and a rehearsal of the "Event Plan" are complete. Since it is
difficult to predict all possible risk scenarios, the Company intends to
continue to revise these plans on an ongoing basis as needed.
13
<PAGE> 14
Like many other companies, the operations of the Company are
interconnected with third party service providers and vendors who provide
services, equipment, technology and/or software. Therefore, the Company's
operations could be materially affected if those parties fail to achieve Year
2000 readiness. The Company remains in constant communication with key service
providers and vendors. The Company required service providers to submit in
writing their expected and/or achieved Year 2000 date of compliance. Team2000
identified and tracked more than 200 individual service providers and vendors in
the assessment phase. Team2000 monitored the renovation and testing efforts of
service providers. Additionally, Team2000 conducted testing of vendors and
vendor provided products. Team2000 has made decisions on a case-by-case basis to
determine whether to continue the current relationship with each vendor or to
replace the product or service. At September 30, 1999 all service providers and
vendors being tracked were either compliant, upgraded or retired.
In addition, Team2000 is responsible for evaluating the level of Year
2000 compliance of material customers including, funds users, funds providers
and capital market/asset management counterparties. Customers representing
material Year 2000 related risk were identified and contacted. The Company
continues to monitor these customers' level of preparedness as related to the
Year 2000 issues. Management has developed appropriate controls to manage and
mitigate any risk identified. In addition, Team2000 has appointed an Awareness
Subcommittee that is responsible for increasing customer awareness of the Bank's
Year 2000 efforts throughout the 1999 year. In September 1999 the Company
launched its "We're Ready" campaign.
The Company believes it has addressed each issue related to the Year
2000 and taken the necessary steps to minimize the operational, regulatory and
legal risks associated. However, like other banks, the Company may experience a
decline in the Bank's deposit base if customers withdraw a significant amount of
deposited funds prior to the year 2000. The Company has addressed the Bank's
liquidity issues as related to the Year 2000. The Bank has worked with fund
providers to ensure it has the ability to meet projected cash needs. Team2000
also addressed the issues related to loan payment performance by borrowers. It
is possible that borrowers may encounter Year 2000 related issues that could
affect their ability to repay loans according to the agreed upon terms. None of
the Company's significant relationships have reported any expectation of
material adverse impact as a result of Year2000, the Company will continue to
monitor these relationships and assess the impact of Year 2000 on their
operations.
The Company has incurred approximately $750,000 in expenses related to
the Year 2000 requirements. Cost associated with the redeployment of personnel
to the Year 2000 project is not included above. The Company identified and
developed plans for all mission critical applications; however, additional
expenses may be incurred if problems are encountered which were not previously
identified. At this time, management does not believe these expenses will have a
material effect on the operations or financial performance of the Company.
However, the above discussion includes a number of forward-looking statements.
The statements are based upon the information currently available to the Company
as related to Year 2000 compliance efforts and the impact on the Company's
operations by Year 2000 issues. Various factors could influence actual results
to differ materially from those expected through the Company's current
assessment and estimates, including certain factors that are beyond the
Company's control. The factors include, in part: (a) the Company's ability to
successfully identify systems and programs that are not Year 2000 compliant, (b)
the Company's ability to successfully identify the nature and estimate the cost
associated with upgrading or replacing these systems and programs, (c) the
ability of third party service providers, vendors and customers to successfully
address
14
<PAGE> 15
and resolve their Year 2000 issues and (d) the Company's ability to successfully
implement contingency plans if needed. For additional information regarding
forward looking statements, see "A Warning About Forward-Looking Information" on
page 16.
H. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. This statement could
increase volatility in earnings and other comprehensive income. Adoption of this
statement is not expected to have a material impact on the Company's financial
position or results of operation.
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.137,"Accounting for Derivative
Instruments and Hedging Activities - Deferral of Effective Date of FASB
Statement No. 133", deferring the effective date of FASB Statement No. 133 to
all fiscal quarters of fiscal years beginning after June 15, 2000.
I. Guaranteed Preferred Beneficial Interests in Debentures
On July 29, 1998, the Company closed a public offering of 1,150,000 of
8.50% Cumulative Trust Preferred Securities (the "Preferred Securities") offered
and sold by EBI Capital Trust I (the "Trust"), having a liquidation amount of
$25 each. The proceeds from such issuances, together with the proceeds of the
related issuance of common securities of the Trust purchased by the Company,
were invested in 8.50% Subordinated Debentures (the "Debentures") of the
Company. The sole asset of the Trust is the Debentures. The Debentures, the
Indenture, the relevant Trust agreement, and the Guarantee, in the aggregate,
constitute a full and unconditional guarantee by the Company of the obligations
of the Trust under the Preferred Securities and ranks subordinate and junior in
right of payment to all liabilities of the Company. The Preferred Securities are
subject to redemption prior to maturity at the option of the Company.
Total proceeds to the Company from the offering were $28,750,000. The
Company contributed $11,000,000 to the Bank to increase the Bank's capital
ratios to support growth for working capital and to increase the Bank's
regulatory capital from "adequately capitalized" to "well-capitalized." The Bank
used these proceeds to increase its securities available for sale. Additionally,
approximately $4,300,000 was used to repay existing debt associated with the
Company's real estate investment in Rivermoore Park, LLP and to invest in
investment grade preferred securities of approximately $3,500,000, held as
available for sale by the Company. The remainder of the net proceeds was used
for general corporate purposes.
J. Treasury Stock
During the second quarter of fiscal 1999, the Company' Board of
Directors approved a stock repurchase program. The plan authorizes the Company
to purchase up to 300,000 shares of its common stock on the open market. As of
September 30, 1999, the Company has repurchased 252,750 shares
15
<PAGE> 16
with a cost of approximately $4,598,000.
K. Real Estate Investment Trust
On April 30, 1999, TFB Management, Inc., TFB Management (NC), Inc., and
TFB Management (RE), Inc., were incorporated as Delaware corporations. The Bank
is the 100% owner of TFB Management, Inc., which is the 100% owner of TFB
Management (NC), Inc., which is the 100% owner of TFB Management (RE), Inc. TFB
Management (RE), Inc. was formed to qualify as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code. This three-tier structure was utilized
to reduce the Company's effective tax rate.
L. A Warning About Forward-Looking Information
This filing contains forward-looking statements. We may also make
written forward-looking statements in our periodic reports to the Securities and
Exchange Commission, in our proxy statements, in our offering circulars and
prospectuses, in press releases and other written materials and in oral
statements made by our officers, directors or employees to third parties.
Statements that are not historical facts, including statements about our beliefs
and expectations, are forward-looking statements. These statements are based on
beliefs and assumptions of management and on information currently available to
such management. Forward-looking statements include statements preceded by,
followed by or that include the words "believes," "expects," "plans,"
"estimates" or similar expressions. Forward-looking statements speak only as of
the date they are made, and we undertake no obligation to update publicly any of
them in light of new information or future events.
Forward-looking statements involve inherent risks and uncertainties. We
caution you that a number of important factors could cause actual results to
differ materially from those contained in any forward-looking statement. Such
factors include, but are not limited to, the following: competitive pressures
among depository and other financial institutions may increase significantly;
changes in the interest rate environment may reduce margins; general economic or
business conditions may lead to a deterioration in credit quality or a reduced
demand for credit; legislative or regulatory changes, including changes in
accounting standards, may adversely affect the business in which the Company is
engaged; changes may occur in the securities markets; and competitors of the
Company may have greater financial resources and develop products that enable
such competitors to compete more successfully than the Company.
Management believes these forward-looking statements are reasonable;
however, undue reliance should not be placed on such forward-looking statements,
which are based on current expectations.
Forward-looking statements are not guarantees of performance. They
involve risks, uncertainties and assumptions. The future results and shareholder
values of the Company may differ materially form those expressed in the
forward-looking statements contained in this report. Many of the factors that
will determine these results and values are beyond the Company's ability to
control or predict.
16
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
<TABLE>
<CAPTION>
SUMMARY FINANCIAL DATA
(dollars in thousands except per share data) % Change
QUARTER ENDED Sept. 30, 1999 from
---------------------------------------------- ------------------------
SEPT. 30, June 30, Sept. 30, June 30, Sept. 30,
For the quarter: 1999 1999 1998 1999 1998
---------- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net income $ 2,247 $ 2,441 $ 2,471 -7.95% -9.07%
Per common share:
Net income per common share - basic 0.40 0.44 0.42 -9.09% -4.76%
Net income per common share - diluted 0.40 0.43 0.41 -6.98% -2.44%
Dividends declared 0.16 0.16 0.16 -- --
Book value per share 13.21 13.19 13.38 0.15% -1.27%
Average common shares outstanding - basic 5,560 5,571 5,788 -0.20% -3.94%
Average common shares outstanding - diluted 5,677 5,700 5,955 -0.40% -4.67%
Profitability ratios: (%)
Return on average assets 0.74% 0.80% 0.85% -7.50% -12.94%
Return on average equity 12.33% 13.26% 12.90% -7.01% -4.42%
Efficiency ratio 75.66% 74.64% 70.05% 1.37% 8.01%
Net interest margin - taxable equivalent 3.10% 2.99% 3.02% 3.68% 2.65%
Equity to assets 6.19% 6.04% 6.23% 2.48% -0.64%
At quarter end:
Loans held for sale $ 148,819 $ 196,590 $ 368,318 -24.30% -59.59%
Loans receivable, net 665,772 645,147 521,271 3.20% 27.72%
Reserve for loan losses 7,125 7,251 7,184 -1.74% -0.82%
Assets 1,187,591 1,217,310 1,242,640 -2.44% -4.43%
Deposits 772,270 803,763 773,587 -3.92% -0.17%
FHLB advances and other borrowings 298,947 277,723 308,400 7.64% -3.07%
Stockholders' equity 73,465 73,527 77,420 -0.08% -5.11%
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
SEPT. 30, Sept. 30,
For the six months: 1999 1998 % Change
--------- --------- --------
<S> <C> <C> <C>
Net income $ 4,688 $ 5,451 -14.00%
Per common share:
Net income per common share - basic 0.84 0.94 -10.64%
Net income per common share - diluted 0.83 0.91 -8.79%
Dividends declared 0.32 0.32 --
Average common shares outstanding - basic 5,560 5,788 -3.94%
Average common shares outstanding - diluted 5,680 5,971 -4.87%
Profitability ratios: (%)
Return on average assets 0.77% 0.95% -18.95%
Return on average equity 12.79% 14.23% -10.12%
Efficiency ratio 75.11% 67.54% 11.21%
Net interest margin - taxable equivalent 3.04% 3.04% --
</TABLE>
17
<PAGE> 18
Overview
The Company's net income for the second quarter of fiscal 2000
decreased $224,000 or 9.07% to $2,247,000 or $0.40 per diluted share, compared
to $2,471,000 or $0.41 per diluted share for the same quarter last year. Net
income for the current six month period decreased $763,000 or 14.00% to
$4,688,000 or $0.83 per diluted share, compared to $5,451,000 or $0.91 per
diluted share for the same period last year. The decrease is primarily
attributable to a decline in mortgage production fees.
Of the total $2,247,000 in net income, the community banking operation
accounted for $3,205,000; Eagle Real Estate Advisors, the real estate
development and sales business, comprised $552,000; Eagle Bancshares Capital
Group, the mezzanine financing unit, contributed $238,000; and Prime Eagle
Mortgage Corporation, the mortgage banking group, accounted for a loss of
$1,475,000. Other operations accounted for a loss of $273,000.
For the quarter ended September 30, 1999, the Company's community
banking activities resulted in income of $3,205,000, compared with $945,000 in
the same period a year ago. The community banking efficiency ratio improved to
54.57% during the quarter ended September 30, 1999, compared to 79.60% for the
same period a year ago. For the six months ended September 30 1999, the
Company's community banking activities resulted in income of $5,233,000,
compared with $2,821,000, in the same period a year ago. Return on segment
assets for the six months ended September 30, 1999 was 0.89% compared to 0.48%
for the same period last year. The efficiency ratio for the six months ended
September 30, 1999 declined to 61.20% compared to 71.33% for the same period
last year. The improvement over the prior year six-month period is primarily
attributable to the increase in net interest income and improving asset quality.
Net interest income increased 12.54% to $16,973,000 from $15,082,000 at the
community bank with interest income remaining stable and interest expense
declining. The spread improved 22 basis points over the prior year due to a
decline in the cost of funds. In addition, total problem assets declined
$2,832,000 from $15,373,000 to $12,541,000.
In August 1999, management executed a strategy to improve the
profitability of the Community Bank. Staffing levels were examined, and branches
which were operating below their break-even level were sold or closed. The
benefits of the expense reduction program should initially be realized in the
Company's quarter ending December 31, 1999. On June 30, 1999, the Company sold
its Towne Lake branch in Cherokee County and closed its branch on Memorial
Drive. The sale of the Towne Lake deposits and branch location generated a gain
of $673,000.
For the quarter ended September 30, 1999, the Company's mortgage
banking activities resulted in losses of $1,475,000, compared with income of
$1,475,000, in the same period a year ago. For the six months ended September 30
1999, the Company's mortgage banking activities resulted in losses of
$2,194,000, compared with income of $1,652,000, in the same period a year ago.
The losses associated with mortgage banking activities were principally
attributable to a number of the Company's mortgage banking offices operating
below their break-even level of loans closed. The dollar amount of loans closed
during the current six-month period was $513,452,000 compared to loan closings
of $767,547,000 during the six-month period ended September 30, 1998. As a
result, we have recently consolidated loan origination branches operating below
break-even levels and closed retail mortgage banking offices in the Atlanta
metropolitan area. Management has also analyzed the efficiencies of each
18
<PAGE> 19
mortgage loan function and intends to right size staffing levels to meet
anticipated loan volume.
For the quarter ended September 30, 1999, Eagle Real Estate Advisors
generated income of $552,000, compared with $77,000 in the same period a year
ago. Investments in real estate decreased 4.89% to $29,528,000 at September 30,
1999, from $31,045,000 at September 30, 1998. For the six months ended September
30 1999, Eagle Real Estate Advisors generated income of $1,700,000, compared
with $586,000 in the same period a year ago. In the six months ended September
30, 1999 gains on the sale of investment in real estate were $3,253,000 versus
$1,091,000 for the same period a year ago. In the quarter ended September 30,
1999 gains on the sale of real estate were $1,176,000 compared to $162,000 in
the same period a year ago. This represented 73 lot sales during the current
quarter, 39 lot sales during the first quarter of fiscal year 2000 and 27 lot
sales during the same period last year. In the June 1999 quarter $1,268,000 is
attributable to the sale of the Company's Barnes & Noble store.
For the quarter ended September 30, 1999, Eagle Bancshares Capital
Group generated income of $238,000 compared with $169,000 in the same period a
year ago. Total mezzanine loans decreased $1,825,000 or 17.18% to $8,795,000 at
September 30, 1999, from $10,620,000 at September 30, 1998. For the six months
ended September 30 1999, Eagle Bancshares Capital Group generated income of
$470,000 compared with $338,000 in the same period a year ago. Substantially all
of those earnings were attributable to interest and fees on financing
arrangements. The mezzanine financing group invested over $4,000,000 in the
first six months of fiscal 2000 and helped originate over $12,000,000 of
commercial loans for the Bank.
Earnings Highlights
(Six-month period September 30, 1999 compared to the six-month period ended
September 30, 1998)
- - Net interest income increased $21,000 or 0.05% to $42,765,000 compared
to $42,744,000 for the same period one year ago.
- - Non-interest income decreased $983,000 or 7.51% to $12,113,000 from
$13,096,000 for the same period last year. Mortgage production fees is
the main contributor to the decrease.
- - Return on average shareholders' equity was 12.79%, compared to 14.23%
for the same period one year ago.
- - Return on average assets was 0.77% for the current period, compared to
0.95% for the six month period last year.
- - Loan loss provisions decreased $854,000 or 68.10% to $400,000 from
$1,254,000 for the same period one year ago.
- - Non-interest expense increased $2,036,000 or 10.40% to $21,619,000
compared to $19,583,000 for the same period one year ago.
Net Interest Income
Net interest income increased by $648,000 or 8.23% to $8,517,000 in the
second quarter of fiscal 2000 from $7,869,000 for the same quarter last year.
Quarterly net interest income increased as a result of an improvement in the net
interest rate spread.
Net interest income increased by $775,000 or 4.88% to $16,672,000
during the first half of fiscal 2000 from $15,897,000 for the same period last
year. This increase is also the result of the
19
<PAGE> 20
improvement in the net interest rate spread.
Non-Interest Income
Non-interest income decreased by $2,077,000 or 31.09% to $4,604,000 for
the second quarter of fiscal 2000 from $6,681,000 for the same period last year.
In addition, non-interest income decreased by $983,000 or 7.51% to $12,113,000
for the first half of fiscal 2000 from $13,096,000 for the same period last
year. The decrease is primarily due to a decline in mortgage production fees.
Credit Quality
Total problem assets were $12,541,000 at September 30, 1999, or 1.06%
of total assets, compared to 1.24% on September 30, 1998. The reserve for loan
losses totaled $7,125,000 at quarter end or 56.81% of problem assets, compared
to $7,184,000 or 46.73% one year earlier. During the quarter, the provision for
loan losses was $100,000 compared to $627,000 for same period last year. For the
first half of fiscal 2000, the provision for loan losses was $400,000 compared
to $1,254,000 for the same period one year ago. Net charge-offs equaled 0.14% of
average loans receivable, net, outstanding for the second quarter of fiscal 2000
compared to 0.13% during the same period in fiscal 1999. Net charge-offs equaled
0.19% and 0.21% of average loans receivable, net, outstanding for the first six
months of fiscal 2000 and fiscal 1999, respectively.
Capital Strength
Total shareholders' equity was $73,465,000 on September 30, 1999 or
6.19% of period-end assets, compared to 6.23% on September 30, 1998. Book value
per common share was $13.21 at the end of the quarter compared to $13.38 at
September 30, 1998.
Income Tax Expense
The Company's effective tax rate for the second quarter and first half
of fiscal 2000 was 27.4% and 30.7%, respectively, compared to 33.8% and 33.2% in
the same periods last year. In the second quarter of fiscal 2000, the Bank
recorded an income tax benefit related to the anticipated state tax savings
associated with the formation of the REIT.
EARNINGS ANALYSIS
Net Interest Income - Quarterly Analysis
Net interest income increased by $648,000 or 8.23% to $8,517,000 in the
second quarter of fiscal 2000 from $7,869,000 for the same quarter last year.
The net interest spread (the difference between the yield earned on
interest-earning assets and the cost of interest-bearing liabilities) increased
21 basis points to 2.87% from 2.66% in the same period last year. This increase
resulted from the decline in the cost of the Company's interest bearing
liabilities. The yield on interest-earning assets decreased 35 basis points to
7.72% from 8.07% while the cost of interest-bearing liabilities decreased 56
basis points to 4.85% from 5.41%. In the first six months of fiscal 1999,
interest rates were declining. The yield on interest-earning assets declines
more immediately while the reduction in the cost of the Company's
interest-bearing liabilities is slower to take effect. As the Company
anticipated, the spread shows an improvement in the first six months of fiscal
2000 as interest-bearing liabilities have repriced at a lower cost.
Interest income received on loans decreased $1,337,000 or 7.31% to
$16,948,000 for the second
20
<PAGE> 21
quarter of fiscal 2000 from $18,285,000 in fiscal 1999. The decrease in interest
received on loans was primarily attributable to a decline in originations of
conforming single family loans held for sale accompanied by a decline in the
yield of both the Company's loans receivable and held for sale portfolios. The
yield on loans declined 24 basis points to 8.03% for the quarter compared to
8.27% in the same quarter last year. Interest received on mortgage-backed
securities increased $868,000 or 67.65% to $2,151,000 for the second quarter of
fiscal 2000 from $1,283,000 in the second quarter of fiscal 1999. Interest
received on securities increased $598,000 or 34.33% to $2,340,000 in fiscal 2000
from $1,742,000 in the prior period.
Interest expense decreased $519,000 or 3.86% to $12,922,000 for the
second quarter of fiscal 2000 from $13,441,000 in the second quarter of fiscal
1999. This is primarily the result of a decline in the cost of the Company's
interest bearing liabilities. Interest expense on deposits decreased $1,430,000
or 13.91% to $8,851,000 from $10,281,000 in the same period in the prior year.
The cost of deposits decreased 61 basis points to 4.71% during the quarter from
5.32% in the prior period. Interest expense on FHLB advances and other
borrowings increased $722,000 or 26.49% to $3,448,000 for the second quarter of
fiscal 2000 from $2,726,000 in the second quarter of fiscal 1999. The Bank's
cost of FHLB advances and other borrowings decreased 58 basis points to 4.84%
from 5.42% in the same period in the prior year. The Bank utilizes short term
FHLB advances to fund construction loans and loans held for sale. In addition,
interest expense on trust preferred securities, issued during the second quarter
of fiscal 1999, was $623,000 for the second quarter of fiscal 2000 compared to
$434,000 for the same period last year.
Net Interest Income - Six Month Analysis
Net interest income increased by $775,000 or 4.88% to $16,672,000
during the first half of fiscal 2000 from $15,897,000 for the same period last
year. The net interest spread (the difference between the yield earned on
interest-earning assets and the cost of interest-bearing liabilities) increased
22 basis points to 2.84% from 2.62% in the same period last year. This increase
resulted from the decline in the cost of the Company's interest bearing
liabilities. The yield on interest-earning assets decreased 35 basis points to
7.71% from 8.06% while the cost of interest-bearing liabilities decreased 57
basis points to 4.87% from 5.44%. In the first six months of fiscal 1999,
interest rates were declining. The yield on interest-earning assets declines
more immediately while the reduction in the cost of the Company's
interest-bearing liabilities is slower to take effect. As the Company
anticipated, the spread shows an improvement in the first six months of fiscal
2000 as interest-bearing liabilities have repriced at a lower cost.
Interest income received on loans decreased $2,877,000 or 7.85% to
$33,765,000 for the first half of fiscal 2000 from $36,642,000 for the same
period last year. The decrease in interest received on loans was primarily
attributable to a decline in originations of conforming single family loans held
for sale accompanied by a decline in the yield of both the Company's loans
receivable and held for sale portfolios. The yield on loans declined 21 basis
points to 8.03% for the six months compared to 8.24% in the same period last
year. Interest received on mortgage-backed securities increased $1,619,000 or
63.39% to $4,173,000 for the first six months of fiscal 2000 from $2,554,000 in
the same period one year ago. Interest received on securities increased
$1,279,000 or 36.05% to $4,827,000 in fiscal 2000 from $3,548,000 in the prior
period.
21
<PAGE> 22
Interest expense decreased $754,000 or 2.81% to $26,093,000 for the
first half of fiscal 2000 from $26,847,000 in the same period of fiscal 1999.
This is primarily the result of a decline in the cost of the Company's interest
bearing liabilities. Interest expense on deposits decreased $2,161,000 or 10.45%
to $18,520,000 from $20,681,000 in the same period in the prior year. The cost
of deposits decreased 65 basis points to 4.76% during the period from 5.41% in
the prior period. Interest expense on FHLB advances and other borrowings
increased $596,000 or 10.40% to $6,328,000 for the first half of fiscal 2000
from $5,732,000 in the same period last year. The Bank's cost of FHLB advances
and other borrowings decreased 63 basis points to 4.79% from 5.42% in the same
period in the prior year. The Bank utilizes short term FHLB advances to fund
construction loans and loans held for sale. Interest expense on trust preferred
securities was $1,245,000 for the first half of fiscal 2000 compared to $434,000
in the same period last year.
Interest Rate and Market Risk
The Company employs sensitivity analysis in the form of a net interest
income simulation to help characterize the market risk arising from changes in
interest rates. The Company's net interest income simulation includes all
financial assets and liabilities.
The Company uses four standard scenarios - rates unchanged, expected
rates, high rates, and low rates - in analyzing interest rate sensitivity. The
expected scenario is based on the Company's projected future interest rates,
while the high and low rate scenarios cover a 100 basis points upward and
downward rate movement. The Company closely monitors each scenario to manage
interest rate risk. As of September 30, 1999, the expected rate simulation
indicated an increase in annual net interest income of $444,000 or 1.20%
relative to the unchanged rate simulation and a $3,482,000 or 3.64% increase in
market value. This compares to March 31, 1999, which indicated an increase in
annual net interest income of $367,000 or 0.94% relative to the unchanged rate
simulation and a $36,000 or 0.04% decline in market value.
As of September 30, 1999, management estimates the Company's annual net
interest income would increase approximately $2,092,000 or 5.44%, and decrease
approximately $3,214,000 or 8.37% should interest rates instantaneously rise or
fall 100 basis points, versus the projection under unchanged rates. As of March
31, 1999, the simulation indicated an increase of approximately $2,405,000 or
6.16% and a decrease of approximately $3,541,000 or 9.06%.
A fair value analysis of the Company's balance sheet calculated under
an instantaneous 100 basis point increase in rates over September 30, 1999,
estimates a $15,264,000 or 16.02% decrease in market value. The Company
estimates a like decrease in market rates would increase market value $405,000
or 0.42%. These changes in market value represent less than 5.0% of the total
carrying value of total assets at September 30, 1999. Comparatively, at March
31, 1999, an instantaneous increase in market rates of 100 basis points would
increase market value approximately $12,969,000 or 19.55%, while a like decrease
in rates would decrease market value approximately $2,812,000 or 4.24%.
These simulated computations should not be relied upon as indicative of
actual future results. Further, the computations do not contemplate certain
actions that management may undertake in response to future changes in interest
rates.
22
<PAGE> 23
Net interest income on a taxable-equivalent basis expressed as a
percentage of average total assets is referred to as the net interest margin.
The net interest margin represents the average net effective yield on earning
assets. The net interest margin increased to 3.10% for the second quarter of
fiscal 2000 from 3.02% for the same period last year. The net interest margin
remained constant at 3.04% for the first half of fiscal 2000 and 1999. The
average balance sheets on the next page present the individual components of net
interest income and expense, net interest spread and net interest margin.
The following tables reflect the average balances, the interest income
or expense and the average yield and cost of funds of the Company's interest
earning assets and interest bearing liabilities during the second quarter and
first six months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
Three months ended September 30, 1999 1998
----------------------------------- -----------------------------------
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans receivable(1) $ 668,947 $ 14,188 8.48% $ 530,945 $ 12,255 9.23%
Loans held for sale 175,052 2,760 6.31% 353,723 6,030 6.82%
Mortgage-backed securities 131,816 2,151 6.53% 74,299 1,283 6.91%
FHLB stock 11,109 210 7.56% 8,683 164 7.55%
Taxable investments(2) 68,595 1,097 6.40% 21,643 401 7.41%
Tax-exempt investment securities(2) 63,208 1,183 7.49% 72,719 1,273 7.00%
Interest earning deposits and Federal funds 1,423 28 7.87% 2,733 69 10.10%
---------- -------- ---- ---------- -------- -----
Total interest earning assets 1,120,150 21,617 7.72% 1,064,745 21,475 8.07%
Non-interest earning assets 98,175 94,722
---------- -------- ---- ---------- -------- -----
Total assets $1,218,325 $1,159,467
---------- -------- ---- ---------- -------- -----
Interest-bearing liabilities
---------- -------- ---- ---------- -------- -----
Savings accounts $ 35,657 $ 162 1.82% $ 38,203 $ 201 2.10%
Checking 108,854 883 3.24% 99,340 914 3.68%
Money market 88,590 856 3.86% 70,453 795 4.51%
Certificates of deposit 517,981 6,950 5.37% 565,327 8,371 5.92%
---------- -------- ---- ---------- -------- -----
Total deposits 751,082 8,851 4.71% 773,323 10,281 5.32%
FHLB advances and other borrowings 285,062 3,448 4.84% 201,250 2,726 5.42%
Trust preferred securities 28,750 623 8.67% 19,245 434 9.02%
---------- -------- ---- ---------- -------- -----
Total interest bearing liabilities 1,064,894 12,922 4.85% 993,818 13,441 5.41%
Non-interest bearing deposits 54,146 37,937
Non-interest bearing liabilities 26,410 51,110
Stockholders' equity 72,875 76,602
---------- -------- ---- ---------- -------- -----
Total liabilities and equity $1,218,325 $1,159,467
---------- -------- ---- ---------- -------- -----
Net interest rate spread $ 8,695 2.87% $ 8,034 2.66%
Taxable-equivalent adjustment (178) (165)
---------- -------- ---- ---------- -------- -----
Net interest income, actual $ 8,517 $ 7,869
Net interest earning assets/net interest margin $ 55,256 3.10% $ 70,927 3.02%
Interest earning assets as a percentage of
interest bearing liabilities 105.19% 107.14%
---------- -------- ---- ---------- -------- -----
</TABLE>
(1) Non-accrual loans are included in average balances and income on such loans,
if recognized, is recorded on a cash basis.
(2) The yield for investment securities classified for sale is computed using
historical amortized cost balances.
23
<PAGE> 24
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET
Six months ended September 30, 1999 1998
----------------------------------- -----------------------------------
AVERAGE YIELD/ Average Yield/
(dollars in thousands) BALANCE INTEREST COST Balance Interest Cost
---------- -------- ------ ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets
Loans receivable(1) $ 652,507 $ 27,782 8.52% $ 535,084 $ 24,937 9.32%
Loans held for sale 188,335 5,983 6.35% 354,294 11,705 6.61%
Mortgage-backed securities 129,491 4,173 6.45% 73,030 2,554 6.99%
FHLB stock 10,120 381 7.53% 9,413 356 7.56%
Taxable investments(2) 71,805 2,334 6.50% 21,189 791 7.47%
Tax-exempt investment securities(2) 65,322 2,428 7.43% 73,623 2,631 7.15%
Interest earning deposits and Federal funds 1,553 46 5.92% 1,936 99 10.23%
---------- -------- ---- ---------- -------- -----
Total interest earning assets 1,119,133 43,127 7.71% 1,068,569 43,073 8.06%
Non-interest earning assets 103,691 81,158
---------- -------- ---- ---------- -------- -----
Total assets $1,222,824 $1,149,727
---------- -------- ---- ---------- -------- -----
Interest-bearing liabilities
---------- -------- ---- ---------- -------- -----
Savings accounts 36,541 351 1.92% $ 38,572 $ 447 2.32%
Checking 117,917 1,918 3.25% 98,599 1,881 3.82%
Money market 89,265 1,763 3.95% 56,431 1,250 4.43%
Certificates of deposit 534,946 14,488 5.42% 571,404 17,103 5.99%
---------- -------- ---- ---------- -------- -----
Total deposits 778,669 18,520 4.76% 765,006 20,681 5.41%
FHLB advances and other borrowings 264,034 6,328 4.79% 211,576 5,732 5.42%
Trust preferred securities 28,750 1,245 8.66% 9,623 434 9.02%
---------- -------- ---- ---------- -------- -----
Total interest bearing liabilities 1,071,453 26,093 4.87% 986,205 26,847 5.44%
Non-interest bearing deposits 53,617 42,758
Non-interest bearing liabilities 24,423 44,165
Stockholders' equity 73,331 76,599
---------- -------- ---- ---------- -------- -----
Total liabilities and equity $1,222,824 $1,149,727
---------- -------- ---- ---------- -------- -----
Net interest rate spread $ 17,034 2.84% $ 16,226 2.62%
Taxable-equivalent adjustment (362) (329)
---------- -------- ---- ---------- -------- -----
Net interest income, actual $ 16,672 $ 15,897
Net interest earning assets/net interest margin $ 47,680 3.04% $ 82,364 3.04%
Interest earning assets as a percentage of
Interest bearing liabilities 104.45% 108.35%
---------- -------- ---- ---------- -------- -----
</TABLE>
(1 )Non-accrual loans are included in average balances and income on such loans,
if recognized, is recorded on a cash basis.
(2) The yield for investment securities classified for sale is computed using
historical amortized cost balances.
Non-Interest Income
Non-interest income decreased by $2,077,000 or 31.09% to $4,604,000 for
the second quarter of fiscal 2000 from $6,681,000 for the same period last year.
In addition, non-interest income decreased by $983,000 or 7.51% to $12,113,000
for the first half of fiscal 2000 from $13,096,000 for the same period last
year. The decrease is primarily due to the decrease in mortgage production fees
caused by a lower volume of mortgage loans originated and a decline on the
margin on the loans closed. Originations of loans held for sale declined during
the first half of fiscal 2000 due to an increase in interest rates.
Mortgage production fees are the largest component of non-interest
income and such fees for the second quarter of fiscal 2000 decreased $3,230,000
or 68.87% to $1,460,000 compared to $4,690,000 in the same period last year. For
the first half of fiscal 2000, mortgage production fees decreased $3,667,000 or
46.36% to $4,242,000 compared to $7,909,000 for the same period last year. The
dollar amount of loans originated and sold fluctuates based on the demand for
mortgages in the
24
<PAGE> 25
Company's market. The margin received on loan sales fluctuates due to changes in
the general interest rate environment.
The following table shows mortgage production fees, the dollar amount
of loans sold in the secondary market and the margin earned on those loans for
the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPT.30, SEPT.30,
------------------------- ------------------------
(dollars in thousands) 1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Mortgage production fees $ 1,460 $ 4,690 $ 4,242 $ 7,909
Dollar volume sold $261,263 $359,162 $586,003 $731,821
Margin earned 0.56% 1.31% 0.72% 1.08%
</TABLE>
Non-interest income generated from the Company's real estate
subsidiary, Eagle Real Estate Advisors includes gains on the sale of real estate
and real estate commissions. These sources of revenue increased by $976,000 or
242.18% to $1,379,000 for the second quarter of fiscal 2000 compared to $403,000
for the same period last year. Gains on the sales of real estate and real estate
commissions increased $2,294,000 or 152.43% to $3,799,000 for the first six
months of fiscal 2000 compared to $1,505,000 for the same period last year. In
the first quarter of fiscal 2000, $1,268,000 is attributable to the sale of the
Company's Barnes and Noble Store. In the second quarter of fiscal 2000, $495,000
is attributable to the sale of 50.103 acres purchased and resold in August 1999.
In addition, during the current quarter, 73 lots were sold compared to 27 lots
in the second quarter last year. For the first six months of fiscal 2000, 112
lots were sold compared to 94 lots for the same period last year. The Bank
provides construction loan financing to approved builders for lot sales in some
of the Company's development projects. Gains on sales of lots are deferred until
these loans are repaid, creating timing differences in the recognition of
income. In addition to an increase in the number of lot sales, the number of
loans financed by the Bank during the first six months of fiscal 2000 decreased
as compared to the same period last year causing an increase in gains
recognized.
On June 30, 1999, the Company sold its Towne Lake branch in Cherokee
County. The sale of the Towne Lake deposits of $12,664,000 and branch location
generated a gain of $673,000.
Service charges increased $70,000 or 14.55% to $551,000 in the second
quarter of fiscal 2000 compared to $481,000 in the same period one year ago. In
addition, for the first half of fiscal 2000 service charges decreased $41,000 or
3.90% to $1,010,000 compared to $1,051,000 for the same period last year. During
the second quarter of fiscal 2000, the Bank introduced a new deposit product
line designed to increase income received from service charges. In addition, the
Bank created an improved method to manage collection efforts of service charges
related to overdrafts.
Non-Interest Expense
Non-interest expense decreased by $264,000 or 2.59% to $9,928,000 for
the second quarter of fiscal 2000 from $10,192,000 for the same period last
year. In addition, for the first half of fiscal 2000 non-interest expense
increased $2,036,000 or 10.40% to $21,619,000 from $19,583,000 for the same
period last year. In general the increase was caused by expansion in the
Company's mortgage banking business.
Salaries and employee benefits decreased $89,000 or 1.72% to $5,100,000
for the second quarter of fiscal 2000 from $5,189,000 for the same period last
year. For the first half of fiscal 2000, salaries and employee benefits
increased $1,158,000 or 11.09% to $11,603,000 from $10,445,000 for the same
period one year ago. During the second quarter of fiscal 2000, the Company
recaptured
25
<PAGE> 26
certain incentive accruals in the amount of $431,000, as the Company
did not meet performance level targets. Occupancy expense increased $149,000 or
11.00% to $1,504,000 in the second quarter of fiscal 2000 from $1,355,000 for
the same period last year. Occupancy expense increased $509,000 or 20.22% to
$3,026,000 in the first half of fiscal 2000 from $2,517,000 for the same period
last year. Federal insurance premiums decreased $55,000 or 34.16% to $106,000
for the second quarter of fiscal 2000 from $161,000 for the same period last
year. Federal insurance premiums increased $30,000 or 11.67% to $287,000 for the
first half of fiscal 2000 from $257,000 for the same period last year. Marketing
expense decreased $65,000 or 13.13% to $430,000 for the second quarter from
$495,000 for the same period last year. Marketing expense increased $108,000 or
10.90% to $1,099,000 for the second quarter of fiscal 2000 from $991,000 for the
same period one year ago.
Miscellaneous expenses decreased $351,000 or 14.68% to $2,040,000 for
the second quarter of fiscal 2000 from $2,391,000 for the same period last year.
For the first six months of fiscal 2000, miscellaneous expensed decreased
$19,000 or 0.45% to $4,189,000 from $4,208,000 for the same period last year.
The losses associated with mortgage banking activities were principally
attributable to a lower volume of mortgage loans originated, lower margin earned
on loans closed and to a number of the Company's mortgage banking offices
operating below their break-even level of loans closed. As a result, management
has recently consolidated loan origination branches operating below break-even
levels and closed retail mortgage banking offices in the Atlanta metropolitan
area. Management has also analyzed the efficiencies of each mortgage loan
function and intends to right size staffing levels to meet anticipated loan
volume.
In August 1999, management executed a strategy to improve the
profitability of the Community Bank. Staffing levels were examined and branches
which were operating below the break-even level were sold or closed. The
benefits of the expense reduction program should initially be realized in the
Company' quarter ending December 31, 1999. On June 30, 1999, the Company sold
its Towne Lake branch and deposits in Cherokee County and closed its branch on
Memorial Drive. The deposits associated with the Memorial Drive location are
currently being serviced by both the Wesley Chapel and new Target in-store
locations.
BALANCE SHEET ANALYSIS
Investment Securities
During the first half of fiscal 2000, investment securities decreased
to $266,380,000 from $272,916,000 at March 31, 1999 and increased from
$242,153,000 at September 30, 1998, respectively. The Company classifies its
securities in one of three categories in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities": trading, available for sale, or held to maturity. With
the adoption of SFAS No. 115, the Company has reported the effect of the change
in the method of accounting for investments in debt securities classified as
available for sale as a separate component of equity, net of income taxes. The
Company has no trading securities.
The investment securities portfolio at September 30, 1999, was
comprised of $64,522,000 of investment securities held to maturity at amortized
cost compared to $68,298,000 and $48,804,000 at
26
<PAGE> 27
March 31, 1999 and September 30, 1998, respectively. The Company has the ability
and it is the management's intent to hold these securities to maturity for
investment purposes. In addition, investment securities available for sale had
an estimated market value of $201,858,000 at September 30,1999 compared to
$204,618,000 and $193,349,000 at March 31, 1999 and September 30, 1998,
respectively. Investment securities available for sale had a net unrealized loss
as shown in the Company's stockholders' equity section of $4,623,000 at
September 30, 1999 versus a net unrealized gain of $283,000 at March 31, 1999
and $1,241,000 at September 30, 1998.
The Company holds no investment securities by any single issuer, other
than those issued by an agency of the United States government, which equaled or
exceeded 10% of stockholders' equity at September 30, 1999, March 31, 1999 or
September 30, 1998.
The following table reflects securities held in the Bank's securities
portfolio for the periods indicated:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
SEPTEMBER 30, March 31, September 30,
(dollars in thousands) 1999 1999 1998
------------- --------- -------------
<S> <C> <C> <C>
Investment Securities Held to Maturity:
US Treasury and US Government Agencies $ 12,462 $ 18,539 $ 28,189
Mortgage-backed securities 40,606 32,866 3,663
Corporate bonds 4,941 7,433 7,432
Other debt securities 6,513 9,460 9,520
-------- -------- --------
Total $ 64,522 $ 68,298 $ 48,804
-------- -------- --------
Securities Available for Sale:
US Treasury and US Government Agencies 34,369 $ 35,308 $ 26,581
Mortgage-backed securities 104,347 95,539 89,399
Corporate bonds 2,012 2,027 2,044
Other debt securities 49,512 59,465 63,126
Equity securities - preferred stock 11,618 12,279 12,199
-------- -------- --------
Total $201,858 $204,618 $193,349
-------- -------- --------
Total Investment Securities:
US Treasury and US Government Agencies $ 46,831 $ 53,847 $ 54,770
Mortgage-backed securities 144,953 128,405 93,062
Corporate bonds 6,953 9,460 9,476
Other debt securities 56,025 68,925 72,646
Equity securities - preferred stock 11,618 12,279 12,199
-------- -------- --------
Total $266,380 $272,916 $242,153
-------- -------- --------
</TABLE>
27
<PAGE> 28
Loan Portfolio and Concentration
<TABLE>
<CAPTION>
LOAN PORTFOLIO MIX
SEPT. 30, % OF GROSS March 31, % of Gross Sept. 30, % of Gross
(dollars in thousands) 1999 LOANS RECV 1999 Loans Recv 1998 Loans Recv
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real Estate - construction loans
Construction $ 215,949 27.31% $ 210,877 28.60% $ 200,590 32.25%
Acquisition & Development 96,194 12.17% 71,995 9.76% 40,671 6.54%
Real Estate - mortgage loans
Non-Residential 74,336 9.40% 58,562 7.94% 61,055 9.82%
Residential 268,501 33.95% 272,553 36.97% 191,489 30.79%
Home equity and second mortgages 70,534 8.92% 61,699 8.37% 55,786 8.97%
--------- ------ --------- ------ --------- ------
Total real estate loans 725,514 91.75% $ 675,686 91.64% 549,591 88.37%
Commercial and consumer loans:
Commercial 25,519 3.23% 22,896 3.11% 16,723 2.69%
Mezzanine 8,795 1.11% 4,138 0.56% 10,620 1.71%
Leases 1,788 0.22% 3,354 0.45% 7,022 1.13%
Consumer and other 29,154 3.69% 31,263 4.24% 37,972 6.10%
--------- ------ --------- ------ --------- ------
Total commercial and consumer loans 65,256 8.25% 61,651 8.36% 72,337 11.63%
--------- ------ --------- ------ --------- ------
Total gross loans receivable $ 790,770 100.00% $ 737,337 100.00% $ 621,928 100.00%
--------- ------ --------- ------ --------- ------
Less:
Undisbursed portion of loans in process (118,155) (106,704) (93,139)
Deferred fees and other unearned income 282 (18) (334)
Reserves for loan losses (7,125) (7,345) (7,184)
========= ====== ========= ====== ========= ======
Loans receivable, net 665,772 $ 623,270 $ 521,271
========= ====== ========= ====== ========= ======
</TABLE>
The loan portfolio has increased $42,502,000 or 6.82% to $665,772,000
at September 30, 1999, compared to $623,270,000 at March 31, 1999 and
$144,501,000 or 27.72% compared to $521,271,000 at September 30, 1998.
The community banking group originates primarily construction and
acquisition and development loans, non-residential real estate mortgages,
commercial, consumer and home equity and second mortgage loans in the metro
Atlanta area. Additionally, EBCG has invested $8,795,000 as of September 30,
1999, in mezzanine financing loans. These loan categories increased $54,394,000
or 11.89% to $511,686,000 at September 30, 1999 from $457,292,000 at March 31,
1999, and $98,889,000 or 23.96% from $412,797,000 at September 30, 1998. These
loans represent 64.72% of gross loans receivable at September 30, 1999, compared
to 62.02% and 66.37% March 31, 1999 and September 30, 1998, respectively. The
mortgage-banking group originates primarily loans held for sale. Loans held for
sale decreased $72,551,000 or 32.77% to $148,819,000 at September 30, 1999 from
$221,370,000 at March 31, 1999 and $219,499,000 or 59.59% from $368,318,000 at
September 30, 1998. Both groups contribute to the Company's portfolio of
residential mortgage loans. Residential mortgage loans decreased $4,052,000 or
1.49% to $268,501,000 at September 30, 1999 from $272,553,000 at March 31, 1999
and increased $77,012,000 or 40.22% from $191,489,000 at September 30, 1998.
During fiscal 1999, the Company grew the portfolio of residential mortgage loans
through originations of single-family mortgage loans. Residential first
mortgages are generally believed
28
<PAGE> 29
to be a conservative investment. The Company's high concentration of residential
first mortgages tends to reduce its level of delinquencies and problem loans.
Non-Performing Assets
Total problem assets, which include non-accrual loans, loans classified
as problem assets by Asset Classification Committee (ACC) and real estate
acquired through the settlement of loans, increased by $1,203,000 or 10.61% to
$12,541,000 at September 30, 1999 from $11,338,000 at March 31, 1999.
Additionally, total problem assets decreased $2,832,000 or 18.42% since the
September 30, 1998, level of $15,373,000. Total problem assets as a percent of
total assets increased to 1.06% at September 30, 1999 from 0.92% at March 31,
1999 and decreased from 1.24% September 30, 1998, respectively. At September 30,
1999, non-accrual loans increased $1,195,000 or 17.86% to $7,887,000 compared to
$6,692,000 at March 31, 1999 and decreased $2,874,000 or 26.71% from $10,761,000
at September 30, 1998. Interest income not recognized on these loans amounted to
$349,000 for the first half of fiscal 2000 and $390,000 for the same period last
year. At September 30, 1999, the ACC identified $2,980,000 of potential problem
loans, an increase of $430,000 or 16.86% compared to $2,550,000 at March 31,
1999. In addition, potential problem loans increased by $830,000 or 38.60% from
$2,150,000 at September 30, 1998. Real estate owned decreased by $422,000 or
20.13% and $788,000 or 32.01% to $1,674,000 at September 30, 1999 from
$2,096,000 and $2,462,000 at March 31, 1999 and September 30, 1998,
respectively.
The following table reflects non-accrual loans, potential problem
loans, restructured loans and real estate owned as of the dates indicated.
Potential problem loans are those with respect to which management has doubts
regarding the ability of the borrower to comply with current loan repayment
terms and have been classified as such by the ACC regardless of payment status.
NON-PERFORMING ASSETS, POTENTIAL PROBLEM LOANS and RESTRUCTURED LOANS
<TABLE>
<CAPTION>
SEPT. 30, June 30, March 31, Sept. 30,
(dollars in thousands) 1999 1999 1999 1998
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Non-accrual loans:
Residential real estate-construction $ 383 $ 273 $ 497 $ 2,137
Residential real estate-mortgage 6,713 7,657 5,094 6,192
Commercial real estate 38 37 282 --
Commercial 95 54 37 28
Commercial leases 120 311 311 2,084
Installment 538 494 471 320
------- ------- ------- -------
Total non-accrual 7,887 8,826 6,692 10,761
------- ------- ------- -------
Potential problem loans 2,980 2,902 2,550 2,150
------- ------- ------- -------
Total non-accrual and problem loans 10,867 11,728 9,242 $12,911
------- ------- ------- -------
Real estate owned, net 1,674 1,833 2,096 2,462
------- ------- ------- -------
Total problem assets $12,541 $13,561 $11,338 $15,373
------- ------- ------- -------
Total problem assets/Total assets 1.06% 1.11% 0.92% 1.24%
------- ------- ------- -------
Total problem assets/Net loans plus
Reserves 1.86% 2.08% 1.80% 2.91%
------- ------- ------- -------
Reserve for loan losses/Total Problem assets 56.81% 53.47% 64.78% 46.73%
------- ------- ------- -------
</TABLE>
29
<PAGE> 30
The following table reflects concentrations of non-accrual, potential
problem loans and real estate owned by geographic location and type.
NON-ACCRUAL, POTENTIAL PROBLEM LOANS AND REAL ESTATE OWNED BY LOCATION AND TYPE
<TABLE>
<CAPTION>
At September 30, 1999 Residential
----------------- Comm'l % of Total
(dollars in thousands) Const Mtgs R-Estate Comm'l Leases Installment Total Location
----- ----- -------- ------ ------ ----------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-accrual:
Atlanta 181 6,662 38 95 120 538 7,634 60.10%
Charlotte 202 -- -- -- -- -- 202 1.59%
All other locations -- 51 -- -- -- -- 51 0.40%
----- ----- ----- ---- ---- ---- ------ ------
Total non-accrual 383 6,713 38 95 120 538 7,887 62.09%
----- ----- ----- ---- ---- ---- ------ ------
Potential problem loans:
Atlanta 951 74 1,621 324 10 -- 2,980 23.46%
----- ----- ----- ---- ---- ---- ------ ------
Total potential problem loans 951 74 1,621 324 10 -- 2,980 23.46%
----- ----- ----- ---- ---- ---- ------ ------
Real estate owned:
Atlanta 14 193 269 -- -- -- 476 3.75%
Augusta -- 244 -- -- -- -- 244 1.92%
Hinesville 230 -- -- -- -- -- 230 1.81%
Aiken 72 -- -- -- -- -- 72 0.57%
All other locations 110 703 -- -- -- -- 813 6.40%
----- ----- ----- ---- ---- ---- ------ ------
Total real estate owned(1) 426 1,140 269 -- -- -- 1,835 14.45%
----- ----- ----- ---- ---- ---- ------ ------
Total problem assets by type 1,760 7,927 1,928 419 130 538 12,702 100.00%
----- ----- ----- ---- ---- ---- ------ ------
% of total problem assets by type 13.86% 62.41% 15.18% 3.30% 1.02% 4.23% 100.00%
----- ----- ----- ---- ---- ---- ------
</TABLE>
(1) Does not include reserves of $161,124; real estate owned, net equals
$1,674,211.
Concentrations to Single Borrowers
At September 30, 1999, the Bank has one borrower located in the metro
Atlanta area with a potential problem loan in the amount of $798,000. This
borrower has a non-residential mortgage loan, which is paid current. The Bank
is monitoring the borrowers' financial results and cashflow.
Loan Impairment
Impaired loans exclude residential mortgages, construction loans
secured by first mortgage liens, and groups of small homogeneous loans and
amounted to $192,000 at September 30, 1999, a decrease of $389,000 or 66.95%
from $581,000 at March 31, 1998 and $1,892,000 or 90.79% from $2,084,000 at
September 30, 1998. A loan is considered impaired when a loan is classified as
non-accrual and based on current information, it is probable the Company will
not receive all amounts due in accordance with the contractual terms of the loan
agreement. At September 30, 1999, March 31, 1999 and September 30, 1998, the
valuation allowance related to these impaired loans was $251,000, $214,000 and
$690,000, respectively, which is included in the reserve for loan losses as
presented in the table on the following page. At September 30, 1999, March 31,
1999 and September 30, 1998, all impaired loans had a related loan loss reserve.
During the first six months of fiscal 2000, the Company charged-off $251,000
against loan loss reserves related to impaired loans. During the first six
months of fiscal 1999, the Company had no charge-offs related to impaired loans.
For the second quarter and first half of fiscal 2000, the average recorded
investment in impaired loans was $258,000 and $372,000 compared to $2,059,000
and $1,965,000 for the same periods a year ago.
The Company uses either the cash or cost recovery method to record cash
receipts on impaired loans that are on non-accrual. Under the cash method,
contractual interest is credited to interest income
30
<PAGE> 31
when received. This method is used when the ultimate collectibility of the total
principal is not in doubt. Loans on the cost recovery method may be changed to
the cash method when the application of the cash payments has reduced the
principal balance to a level where collection of the remaining recorded
investment is no longer in doubt.
Reserve for Loan Losses
The Company set aside $100,000 and $627,000, respectively, of
additional reserves for possible loan losses during the second quarters of
fiscal 2000 and fiscal 1999. During the first half of fiscal 2000, the Company
set aside $400,000 compared to $1,254,000 for the same period last year. At
September 30, 1999, reserves represented 1.06% and 1.09% of average loans
outstanding for the second quarter and first half of fiscal 2000, compared to
1.35% and 1.34% for the same periods last year. During the second quarter and
first half of fiscal 2000, the Company charged-off $352,000 and $878,000,
respectively, compared to $262,000 and $738,000 for the same periods one year
ago. In the second quarter and first half of fiscal 2000, net charge-offs
represented 0.14% and 0.19% of average loans outstanding, compared to 0.13% and
0.21% for the second quarter and first half of fiscal 1999. Loan loss reserves
totaled $7,125,000 at September 30, 1999 compared to $7,345,000 and $7,184,000
at March 31, 1999 and September 30, 1998, respectively. Loan loss reserves to
total problem assets decreased to 56.81% at September 30, 1999 from 64.78% at
March 31, 1999 and increased from 46.73% at September 30, 1998. An allocation of
the reserve for loan losses has been made according to the respective amounts
deemed necessary to provide for the possibility of incurred losses within the
various loan categories. Although other relevant factors are considered, the
allocation is primarily based on previous charge-off experience adjusted for
risk characteristic changes among each category. Additional reserve amounts are
allocated by evaluating the loss potential of individual loans that management
has considered impaired. The reserve for loan loss allocation is based on
subjective judgment and estimates, and therefore is not necessarily indicative
of the specific amounts or loan categories in which charge-offs may ultimately
occur. Management believes that the reserves for losses on loans are adequate
based upon management's evaluation of, among other things, estimated value of
the underlying collateral, loan concentrations, specific problem loans, and
economic conditions that may affect the borrowers' ability to repay and such
other factors which, in management's judgment, deserve recognition under
existing economic conditions. While management uses available information to
recognize losses on loans, future additions to the allowances may be necessary
based on changes in economic conditions and composition of the Company's loan
portfolio. The following tables provide an analysis of the reserve for losses.
31
<PAGE> 32
ANALYSIS OF THE RESERVE FOR LOAN LOSSES
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
(dollars in thousands) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Reserve for loan losses, beginning of quarter $ 7,251 $ 6,732 $ 7,345 $ 6,505
Charge-offs:
Real estate - construction 10 -- 10 --
Real estate - mortgage 54 85 117 266
Consumer and other 258 171 470 437
Commercial 5 6 252 19
Commercial leases 25 -- 29 16
- --------------------------------------------------------------- -------- -------- -------- --------
Total charge-offs 352 262 878 738
Recoveries 126 87 258 163
- --------------------------------------------------------------- -------- -------- -------- --------
Net charge-offs 226 175 620 575
Provision for loan losses 100 627 400 1,254
- --------------------------------------------------------------- -------- -------- -------- --------
Reserve for loan losses, end of quarter 7,125 $ 7,184 $ 7,125 $ 7,184
- --------------------------------------------------------------- -------- -------- -------- --------
Average loans receivable, net, outstanding for the period $668,947 $530,945 $652,507 $535,084
- --------------------------------------------------------------- -------- -------- -------- --------
Ratio of net charge-offs to average loans receivable, net 0.14% 0.13% 0.19% 0.21%
- --------------------------------------------------------------- -------- -------- -------- --------
Reserves to average loans receivable, net 1.06% 1.35% 1.09% 1.34%
- --------------------------------------------------------------- -------- -------- -------- --------
</TABLE>
Investment in Real Estate
The Company's investment in real estate decreased $746,000 or 2.46% to
$29,528,000 from $30,274,000 at March 31, 1999 and $1,517,000 or 4.89% from
$31,045,000 at September 30, 1998. On April 27, 1999, Eagle Roswell Road
Development, LLC ("Eagle Roswell Road") was formed to purchase 6.8 acres of land
in Fulton County, Georgia, for the purpose of developing a 56-townhome
residential community. The Company has a 100% ownership interest in Eagle
Roswell Road. In addition, on June 9, 1999, Eagle Hicks Lower Roswell
Development, LLC ("Eagle Hicks Lower Roswell") was formed to purchase 15.9 acres
of land in Cobb County, Georgia, for the purpose of developing a 29-lot
residential community. The Company has an 80% ownership interest in Eagle Hicks
Lower Roswell. On August 6, 1999, Eagle Crestview Development, LLC ("Eagle
Crestview") was formed to purchase and resell 50.103 acres of land in Gwinnett
County, Georgia. The Company has a 100% ownership interest in Eagle Crestview.
The Company currently has eight residential real estate projects in the Atlanta
market.
Deposits
Deposits are the Company's primary funding source. Total deposits
decreased by $107,395,000 or 12.21% to $772,270,000 from $879,665,000 at March
31, 1999 and $1,317,000 or 0.17% from $773,587,000 at September 30, 1998. The
Bank uses traditional marketing methods to attract new customers. Its deposit
network is serviced from its branches located in metro Atlanta. The decline in
deposits was primarily in certificates of deposits which decreased $83,221,000
or 14.12% to $506,086,000 at September 30, 1999 from $589,307,000 at March 31,
1999 and $33,034,000 or 6.13% from $539,120,000 at September 30, 1998. Demand
deposits including noninterest-bearing, interest-bearing, savings and money
market accounts decreased $24,174,000 or 8.33% to $266,184,000 at September 30,
1999, compared to $290,358,000 at March 31, 1999 and increased $31,717,000 or
13.53% from $234,467,000 at September 30, 1998.
32
<PAGE> 33
For the periods indicated, deposits are summarized by type and
remaining term as follows:
<TABLE>
<CAPTION>
DEPOSIT MIX
SEPT. 30, March 31, Sept. 30,
(dollars in thousands) 1999 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Demand deposits:
Noninterest-bearing deposits $ 57,020 $ 45,737 $ 39,169
Interest-bearing deposits 90,002 122,183 97,586
Money market accounts 84,703 85,516 61,505
Savings accounts 34,459 36,922 36,207
-------- -------- --------
Total demand deposits 266,184 290,358 234,467
-------- -------- --------
Time deposits:
Maturity one year or less 367,288 427,203 378,848
Maturity greater than one year through
Two years 55,707 71,337 70,395
Maturity greater than two years through
Three years 32,472 25,568 28,395
Maturity greater than three years 50,619 65,199 61,482
-------- -------- --------
Total time deposits 506,086 589,307 539,120
-------- -------- --------
Total deposits $772,270 $879,665 $773,587
-------- -------- --------
</TABLE>
The weighted average interest rate on time deposits for the periods
ended September 30, 1999, March 31, 1999 and September 30, 1998 was 5.39%, 5.6%
and 5.85%, respectively.
For the periods indicated, interest expense on deposits is summarized
as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
(dollars in thousands) 1999 1998 1999 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
Interest-bearing deposits $ 677 $ 905 $ 1,700 $ 1,865
Money market accounts 922 625 1,705 1,060
Savings accounts 155 234 344 471
Time deposits 7,097 8,517 14,771 17,285
------ ------- ------- -------
Total $8,851 $10,281 $18,520 $20,681
------ ------- ------- -------
</TABLE>
Borrowings
The FHLB system functions as a reserve credit facility for thrift
institutions and certain other member institutions. The Bank utilizes advances
from the FHLB to fund a portion of its assets. At September 30, 1999, advances
were $235,550,000 compared to $157,500,000 at March 31, 1999. At September 30,
1999, the weighted average interest rate on these borrowings increased to 5.45%
compared to 5.38% at March 31, 1999.
Guaranteed Preferred Beneficial Interests in Debentures
On July 29, 1998, the Company closed a public offering of 1,150,000 of
8.50% Cumulative Trust Preferred Securities (the "Preferred Securities) offered
and sold by EBI Capital Trust I (the "Trust"), having a liquidation amount of
$25 each. The proceeds from such issuances, together with the proceeds of the
related issuance of common securities of the Trust purchased by the Company,
were
33
<PAGE> 34
invested in Subordinated 8.50% Debentures (the "Debentures") of the Company. The
sole asset of the Trust is the Debentures. The Debentures are unsecured and rank
junior to all senior debt of the Company. The Company owns all of the common
securities of the Trust. At September 30, 1999, guaranteed preferred beneficial
interests in debentures was $28,750,000. The weighted average interest rate at
September 30, 1999 was 8.65%.
Liquidity and Capital Resources
Liquidity Management
The Asset and Liability Committee ("ALCO") manages the Company's
liquidity needs to ensure there is sufficient cash flow to satisfy demand for
credit and deposit withdrawals, to fund operations and to meet other Company
obligations and commitments on a timely and cost effective basis. Deposits
provide a significant portion of the Company's cash flow needs and continues to
provide a relatively stable, low cost source of funds. The Company's other
primary funding source was provided by advances from the Federal Home Loan Bank.
At September 30, 1999, advances stood at $235,550,000. The liquidity requirement
may vary from time to time (between 4% and 10%) depending upon economic
conditions and savings plans of all member savings institutions. Under current
regulations, the Bank is required to maintain liquid assets of not less than 4%
of the liquidity base at the end of the preceding calendar quarter. At September
30, 1999, the Company's liquidity ratio was 6.64%. At September 30, 1999, the
Company had commitments to originate loans of approximately $44,442,000. The
Company had commitments to sell mortgage loans of approximately $70,750,000 at
September 30, 1999.
Beginning April 1, 1995, the Bank formed an operating subsidiary,
PrimeEagle. This business unit generates revenues by originating permanent
mortgage loans. Substantially all fixed rate permanent mortgage loans are sold
to investors. Permanent mortgage loan originations decreased 33.10% to
$513,452,000 for the first six months of fiscal 2000 compared to $767,547,000
for the same period last year. The Company manages the funding requirements of
these loans primarily with short-term advances from the FHLB.
Cash Flows from Operating Activities
For the first six months of fiscal 2000, cash provided from operating
activities was $66,086,000 as compared to a use of $31,857,000 for same period
last year. The primary reason is timing differences from the sale of loans held
for sale versus originations of loans held for sale. During the first six months
of fiscal 2000, the Company originated $513,452,000 of loans held for sale and
sold $586,003,000 of loans held for sale. This resulted in a $72,551,000 source
of cash. This compares to the same period last year, when the Company originated
$767,547,000 of loans held for sale and sold $731,821,000 of loans held for
sale, resulting in a $35,726,000 use of cash.
Cash Flows from Investing Activities
During the first half of fiscal 2000, the Company used cash of
$43,624,000 for investing activities compared to $67,423,000 for the same period
last year. In the first six months of fiscal 2000, the primary use of cash was
for loan originations, net of repayments of $42,742,000 compared to a source of
cash of $15,695,000 in the same period last year. For the first six months of
fiscal 2000, purchases and repayments of securities available for sale and
investment securities held to maturity resulted in a net use of cash in the
amount of $382,000. Comparatively, for the first six months of fiscal 1999,
purchases and repayments of securities available for sale and investment
securities held to
34
<PAGE> 35
maturity resulted in a net use of cash of $78,229,000. During the first half of
the current year, the Company invested an additional $11,384,000 into real
estate projects and received proceeds of $15,014,000. During the first half of
the prior year, the Company invested $7,802,000 and received proceeds of
$2,681,000.
Cash Flows from Financing Activities
Cash used in financing activities during the first six months of fiscal
2000, was $32,124,000 compared to cash provided of $85,489,000 during the same
period one year ago. The decline in the Company's deposits is the most
significant factor. Deposits declined by $107,395,000 during the first six
months of fiscal 2000 as compared to a decline of $5,388,000 during the same
period last year. The Company borrowed $385,750,000 from the FHLB and repaid
$308,355,000 during the six months. This compares to borrowings of $535,525,000
and repayments of $467,980,000 during the same period last year. In the second
quarter of fiscal 1999, the Company raised $28,750,000 in additional capital
through a new issue of trust preferred securities. The Company paid cash
dividends to its shareholders of $1,783,000 and $1,791,000 for the first six
months of fiscal 2000 and fiscal 1999, respectively.
Capital
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital categories for financial institutions. The
OTS places each federally chartered thrift institution into one of five
categories: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized, and critically under capitalized. These
classifications are based on the Bank's level of risk based capital, leverage
ratios and its supervisory ratings. FDICIA defines "well capitalized" banks as
entities having a total risk based capital ratio of 10% or higher, a tier one
risk based capital ratio of 6% or higher and a leveraged ratio of 5% or higher.
At September 30, 1999, the Bank was classified as "well capitalized" under the
OTS regulations that implement the FDICIA provisions described above. On July
29, 1998, the Company closed a public offering of trust preferred securities
raising $28,750,000 of capital. The Company contributed $11,000,000 of the
proceeds to the Bank.
The following table reflects the Bank's minimum regulatory capital
requirements, actual capital and the level of excess capital by category. The
Bank has historically maintained capital substantially in excess of the minimum
requirement. In fiscal 1999, the Bank paid no dividends to the Company. The
Company contributed capital of $12,000,000 to the Bank during fiscal 1999.
35
<PAGE> 36
<TABLE>
<CAPTION>
REGULATORY CAPITAL
Regulatory Required Excess
(dollars in thousands) Capital % Capital % Capital %
---------- ----- -------- ----- -------- ----
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1999
RISK-BASED RATIOS:
TIER 1 CAPITAL $72,930 10.17 $28,698 4.00 $44,232 6.17
TOTAL CAPITAL 79,766 11.12 57,396 8.00 22,370 3.12
TIER 1 LEVERAGE 72,930 6.21 46,950 4.00 25,980 2.21
TANGIBLE EQUITY 72,930 6.37 17,183 1.50 55,747 4.87
------- ----- ------- ---- ------- ----
March 31, 1999
Tier 1 capital $69,810 9.97 $28,012 4.00 $41,798 5.97
Total capital 76,996 10.99 56,024 8.00 20,972 2.99
Tier 1 leverage 69,810 5.77 48,421 4.00 21,389 1.77
Tangible equity 69,810 5.25 19,951 1.50 49,859 3.75
------- ----- ------- ---- ------- ----
September 30, 1998
Tier 1 capital $67,383 9.59 $28,093 4.00 $39,290 5.59
Total capital 73,839 10.51 56,187 8.00 17,652 2.51
Tier 1 leverage 67,383 5.62 47,939 4.00 19,444 1.62
Tangible equity 67,383 5.81 17,392 1.50 49,991 4.31
------- ----- ------- ---- ------- ----
</TABLE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In November 1992, after acquiring certain assets from the Resolution
Trust Corporation, including various real estate loans, and four mortgage
origination offices, the Bank entered into an Operating Agreement (the
"Agreement") with two individuals and a corporation controlled by them
(collectively, the "Plaintiffs") to assist in the management of the Bank's newly
formed Prime Lending Division ("Prime"). The individual Plaintiffs became
employees of the Bank and their corporation was to be paid a percentage of the
net pretax profits of Prime. In mid-1997, a disagreement arose with respect to
the allocation of expenses to Prime for purposes of calculating the net pretax
profits of Prime. Plaintiffs filed suit on December 5, 1997 alleging, among
other things, that the Bank had improperly calculated net pretax profits under
the Agreement since April 1997. In January 1998, the Bank terminated the
employment of the two individuals "for cause," terminated the Agreement and
filed an Answer and Counterclaim.
The Complaint as amended seeks, among other things (i) a declaration
the Agreement was terminated "without cause" and that, pursuant to a purchase
option in the Agreement, Plaintiffs therefore have the right to purchase the
"assets" of Prime at 75% of fair market value; (ii) a declaration that the term
"assets," as used in connection with the Plaintiffs' alleged purchase option,
includes all outstanding loans that were originated by Prime at the time of
their termination without having to net against the loans any corresponding
liability incurred by the Bank in connection with these loans; (iii) alleged
unpaid profits from Prime's operations (in an amount estimated by the Plaintiffs
to equal approximately $450,000); (iv) alleged consequential damages in excess
of $20 million, which represents the Plaintiffs' assessment of the loss they
incurred by the Bank's "refusal" to sell to Plaintiffs the "assets" as
Plaintiffs have defined them; and (v) unspecified punitive damages and attorneys
fees.
The Bank strongly denies Plaintiffs' entitlement to any relief and
believes its Counterclaim has
36
<PAGE> 37
merit. The Bank believes, among other things, that Plaintiffs were properly
terminated for cause, that Plaintiffs have no rights with respect to the
purchase option, and that even if the purchase option were applicable,
Plaintiffs would have no right to purchase any loans, but only certain tangible
and intangible assets of the Bank, the value of which is estimated to be in the
$1-2 million range.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on Thursday, August
26, 1999, at the Marriott Century Center Hotel in Atlanta, Georgia. A total of
4,953,663 shares of common stock were represented in person or by proxy. This
represents 89.09% of the 5,560,481 shares outstanding as of the record date of
July 8, 1999. C. Jere Sechler, Jr., Chairman of the Board and President,
presided at the meeting and presented a report describing the Company's results
of operations for fiscal year ending March 31, 1999 and outlined the strategic
goals for fiscal 2000.
Shareholder elected management's nominees to the Board of Directors.
The Directors were elected by votes as shown below:
<TABLE>
<CAPTION>
Directors: For Withhold
--------- --------
<S> <C> <C>
Walter C. Alford 4,674,725 278,938
Richard B. Inman, Jr. 4,672,625 281,038
</TABLE>
In other business, management's selection of Arthur Andersen LLP as
independent accountants for the Company resulted in 4,938,255 votes being cast
for Arthur Andersen LLP.
ITEM 5. OTHER INFORMATION
On April 30, 1999, TFB Management, Inc., TFB Management (NC), Inc., and
TFB Management (RE), Inc., were incorporated as Delaware corporations. The Bank
is the 100% owner of TFB Management, Inc., which is the 100% owner of TFB
Management (NC), Inc., which is the 100% owner of TFB Management (RE), Inc. TFB
Management (RE), Inc. was formed to qualify as a Real Estate Investment Trust
("REIT") under the Internal Revenue Code. This three-tier structure was utilized
to reduce the Company's effective tax rate.
Shareholders who wish to present a proposal on matters appropriate for
Shareholder action in accordance with rules and regulations of the Securities
and Exchange Commission at the 2000 Annual Meeting of Shareholders ("2000 Annual
Meeting") are required to provide notice to the Corporate Secretary of their
intent to do so on or before March 27, 2000. The notice must provide the
information (set forth in the Bylaws of the Company) set forth in applicable
rules and regulations of the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended.
37
<PAGE> 38
This deadline applies to all shareholder proposals sought to be considered at
the 2000 Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(11) Computation of per share earnings
(27) Financial Data Schedule (for SEC use only)
Reports on Form 8-K
None
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAGLE BANCSHARES, INC.
(Registrant)
Date: November 15, 1999 /s/ Conrad J. Sechler, Jr.
-------------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board, President and
Principal Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
Date: November 15, 1999 /s/ Richard B. Inman, Jr.
-------------------------------------------
Richard B. Inman, Jr.
Director, Secretary and Treasurer
Date: November 15, 1999 /s/ Conrad J. Sechler, Jr.
-------------------------------------------
Conrad J. Sechler, Jr.
Chairman of the Board and President
Date: November 15, 1999 /s/ LuAnn Durden
-------------------------------------------
LuAnn Durden
Chief Financial Officer
39
<PAGE> 40
EAGLE BANCSHARES, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page No.
----------- --------
<S> <C> <C>
11 Computation of per share earnings 41
</TABLE>
40
<PAGE> 1
EXHIBIT 11
EAGLE BANCSHARES, INC.
Statement re: Computation of per share earnings
Below is reconciliation for the three month period ended September 30, 1999 and
1998, of the difference between average basic common shares outstanding and
average diluted common shares outstanding.
<TABLE>
<CAPTION>
COMPUTATION OF PER SHARE EARNINGS
(dollars in thousands except per share data) THREE MONTHS ENDED
---------------------------------------
SEPT. 30, 1999 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Basic
Net income $2,247 $2,471
------ ------
Average common shares 5,560 5,788
------ ------
Earnings per common share - basic $ 0.40 $ 0.42
------ ------
Diluted
Net income $2,247 $2,471
------ ------
Average common shares - basic 5,560 5,788
Incremental shares outstanding 117 167
Average common shares - diluted 5,677 5,955
------ ------
Earnings per common share - diluted $ 0.40 $ 0.41
------ ------
</TABLE>
Below is reconciliation for the six month period ended September 30, 1999 and
1998, of the difference between average basic common shares outstanding and
average diluted common shares outstanding.
<TABLE>
<CAPTION>
(dollars in thousands except per share data) SIX MONTHS ENDED
---------------------------------------
SEPT. 30, 1999 Sept. 30, 1998
-------------- --------------
<S> <C> <C>
Basic
Net income $4,688 $5,451
------ ------
Average common shares 5,560 5,788
------ ------
Earnings per common share - basic $ 0.84 $ 0.94
------ ------
Diluted
Net income $4,688 $5,451
------ ------
Average common shares - basic 5,560 5,788
Incremental shares outstanding 120 183
Average common shares - diluted 5,680 5,971
------ ------
Earnings per common share - diluted $ 0.83 $ 0.91
------ ------
</TABLE>
41
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EAGLE BANCSHARES INC. FOR THE SIX MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 18,177
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 201,858
<INVESTMENTS-CARRYING> 64,522
<INVESTMENTS-MARKET> 63,578
<LOANS> 213,341
<ALLOWANCE> 7,125
<TOTAL-ASSETS> 1,187,591
<DEPOSITS> 772,270
<SHORT-TERM> 148,947
<LIABILITIES-OTHER> 164,159
<LONG-TERM> 28,750
0
0
<COMMON> 6,115
<OTHER-SE> 67,350
<TOTAL-LIABILITIES-AND-EQUITY> 1,187,591
<INTEREST-LOAN> 33,765
<INTEREST-INVEST> 4,827
<INTEREST-OTHER> 4,173
<INTEREST-TOTAL> 42,765
<INTEREST-DEPOSIT> 18,520
<INTEREST-EXPENSE> 26,093
<INTEREST-INCOME-NET> 16,672
<LOAN-LOSSES> 400
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 21,619
<INCOME-PRETAX> 6,766
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,688
<EPS-BASIC> 0.84
<EPS-DILUTED> 0.83
<YIELD-ACTUAL> 3.04
<LOANS-NON> 7,887
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,980
<ALLOWANCE-OPEN> 7,345
<CHARGE-OFFS> 878
<RECOVERIES> 258
<ALLOWANCE-CLOSE> 7,125
<ALLOWANCE-DOMESTIC> 7,125
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
